Free licensing strategy and ex-post privatization policy with passive ownership

Abstract

This study considers a free licensing strategy with passive ownership and investigates the interaction with ex-post privatization policy in a mixed oligopoly where free licensing can be announced before the government selects its optimal degree of privatization. We examine and compare foreign and public licensors and explore the relationships between the foreign share of passive ownership in domestic firms and the incentive of free licensing strategies. We show that free licensing strategies always yield more privatization and higher welfare. By contrast, free licensing between the foreign and public licensors depends on the share of passive ownership and technology gap. We further consider open technology and fee licensing strategies and provide contrasting findings on the optimal degree of privatization and welfare consequences.